Prices for liquid crystal display TVs should drop between 25 percent and 30 percent this year. That's between 5 percent and 7 percent more than Sony anticipated, Stan Glasgow, president of Sony Electronics, said in a meeting with reporters in San Francisco last week.
While this is good for consumers--and it would be hard to find a thrifty buyer sympathetic to Sony's concerns--the quick plunge in prices could hurt the industry as a whole because it could leave consumer electronics manufacturers financially weakened and less able to invest in future technologies, Glasgow argued.
"LCDs will continue to experience heavy price erosion, but not at this level," he said. "It is hard to see that business model (of drastic price cuts) sustaining itself."
While Glasgow's comments can be attributed in part to the natural disinclination of a manufacturer to cut prices, analysts agreed that the big drop in prices for LCD and plasma TVS has been surprising.
"Prices have come down pretty aggressively," said Steve Baker, an analyst at NPD Techworld. "We saw more big names on Black Friday come out with more aggressive prices than expected. The surprise was that the big guys got dragged into the muck."
Vizio, for instance, a bargain plasma TV maker, sold a 42-inch plasma for $999 while Panasonic also touted 42-inch plasma deals for around $1,300.
A variety of factors have played a role in the dramatic drop. LCD and plasma TV makers are engaged in a turf war for the key 40-inch to 49-inch TV market, Baker said. Many manufacturers are also trying to get rid of excess supplies of TVs shipped to Europe in anticipation of a big selling binge before the summer's World Cup soccer tournament. Not as many sets sold as expected.
Pressure on the big companies
Consumers are buying bigger, fancier TVs, but they expect to buy them at far lower prices than they did a year ago, which squeezes sales margins. Additionally, the number of companies hawking LCD TVs is putting pressure on big companies like Sony. IDC analyst Bob O'Donnell estimated that there might be close to 90 manufacturers.
"You and I can start an LCD company tomorrow. You buy some panels and circuits, get a Taiwanese (contract manufacturer) and, bam, you're in business," he said. "Given that environment, there are people fighting for survival."
Glasgow concurred, and added that consumers, in his mind, could face quality problems in their search for a bargain.
"They (a theoretical cut-rate TV maker) can just pack it with some off--the-shelf components," he said. "How long is that product going to last?"
Unconventional retailers are also bringing prices down as they compete with traditional electronics stores. For example, one of the price leaders this holiday season for TVs has been Home Depot, said Jay Vandenbree, president of consumer sales for Sony Electronics.
To stay competitive, Sony quietly cut prices on select TVs duringby a few hundred dollars, but didn't heavily tout the deal. The prices then went back up.
"We will stay competitive but we won't do anything that damages the industry long term," said Vandenbree, who added that Sony has a "responsibility" not to accelerate price declines in a way that could hurt the industry.
"We decided that we had to be competitive, but we didn't want to send a signal that there is not value in the products," he said. "We didn't think a permanent price cut was in order."